Market Condition in Real Estate: Hot and Cold Market

People who are not in the real estate business sometimes overlook the state of the market when they decide to sell their properties. Whether one is selling their house or looking to refinance their mortgage, having the knowledge of the housing market during the time one decide to sell is essential.

Hot and cold market condition for real estate business

Although home sellers have gained the information of the value of their property through appraisals, in many cases, the prices may not reflect the current market “temperature”.

Knowing how the market is faring won’t just help sell your house faster, if the timing of the market is right, sellers may close the deal higher than their asking price. The opposite applies.

What does “hot market” mean?

The temperature of the market is referred to as “hot” according to several factors, generally indicates a big demand of housing. Hot market is also known as “seller’s market”. Some of the basic defining notions of a seller’s market are as follows:

Inventory is low compared to previous months or years

Inventory is considered “low” when there are a significantly higher numbers in demands compared to the number of houses available in the market, resulting in a high number of closed sales.

The real estate market in a certain or in multiple areas is considered hot when there are higher demands compared to inventory compared to 3 to 6 months, or years past.

More demand than inventory

Although inventory remains high, demands or offers may start to come in and more houses in MLS (Multiple Listing Service) start to go into “pending” status.

In a hot market, buyers are sometimes willing to accept flaws in the house. Affixed fixtures to the house such as minor leaky roofs or faulty faucets may be overlooked during the time where houses are high in demand.

Because of this, sellers are often able to sell a house “as it is” without making improvements to the house.

Increase in median sale prices

Listings in MLS are closed quicker compared to the average time during the previous 3 to 6 months, or years. Homes sell faster, and often, the number of DOM (Days on Market) for listings are fewer.

What does “cold market” mean?

Cold market is the opposite of hot market or seller’s market, whereas there are more houses to sell compared to the demand of houses. This is also referred to as “buyer’s market”.

During the time when the real estate market is cold, it’s obviously an advantageous time for people to buy a property.

Inventory is high

During buyer’s market, inventory is higher compared to the previous 3 to 6 months or years. Listings typically have longer active periods. Several listings may have already expired and therefore it may take some research to know whether one or several listings have been withdrawn or expired before they are put again on the market.

Fewer buyers are purchasing

Pending statuses may get cancelled out, or a listing may go into the pending status longer.

There are typically fewer buyers compared to the number of house available for sale, resulting in more options for home buyers. Sometimes, an indication of a cold market is that real estate ads can be seen everywhere.

Median sale prices are declining

Buyers have the privilege to chose during the time the market is cold, therefore, this results in a decrease in price because there are more competition than demands. Deals are often closed on a lower price compared to the listing’s asking price.

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